Stockholders’ equity on your balance sheet represents the accounting value of the owners’ interest in your small business. Equity equals total assets minus total liabilities. The amount of equity on your balance sheet fluctuates as your business generates profits and losses and raises money from and pays dividends to investors. It’s important to compare your equity from year to year to monitor your progress and growth. You can measure the dollar amount as well as the percentage by which your equity changes. In general, a profitable business should grow its equity annually.

1. Find the amount of total stockholders’ equity on your annual balance sheets for any two consecutive years. For example, assume your small business had $75,000 in stockholders’ equity in the most recent year and $50,000 in the previous year.

2. Subtract the equity in the previous year from the amount in the most recent year to determine the dollar amount by which your equity changed. A positive number represents an increase, while a negative number represents a decrease. In this example, subtract $50,000 from $75,000 to get $25,000, which represents a $25,000 year-to-year increase.

3. Divide the dollar change in your equity by the amount of equity in the previous year. Use a negative sign in the numerator if you had a decrease in equity. Continuing the example, divide $25,000 by $50,000 to get 0.5.

4. Multiply your result by 100 to determine the percentage change in equity from year to year. A negative result represents a percentage decrease. Concluding the example, multiply 0.5 by 100 to get 50 percent, which represents a 50 percent year-to-year increase in stockholders’ equity.

Tip

Calculate the change in stockholders’ equity for every year you have been in business to identify any positive or negative trends.

Warning

Stockholders’ equity on your balance sheet is based on historical figures and various accounting methods and might not represent the true market value of your business. The market value of your small business might change regardless of the year-to-year changes in balance sheet equity.